More than two years ago, the Senate Finance and Judiciary Committees began an inquiryinto the SEC’s handling of the Pequot Capital Management investigation and the termination ofGary Aguirre. On August 24, 2006, you wrote, “The allegations of improper conduct in thismatter are utterly inconsistent with the mission and professionalism of this agency—and asChairman, I assure you that if they are proven true, the consequences will be swift and severe.”

One year ago, Senator Specter and I issued our final report. Among other things, wefound the following: (1) the decision of whether to take the testimony of John Mack, who wasthen under consideration to become the head of Morgan Stanley, was influenced by hisprominence as an “industry captain” on Wall Street, (2) Gary Aguirre’s resistance to this decisionby his supervisors was an inappropriate factor in his termination, and (3) the SEC InspectorGeneral’s initial investigation of this matter failed to locate or consider documents and testimonycontrary to the self-serving defense offered by SEC management.

In the year since our report was issued, there have been efforts underway to implementour broader policy recommendations. However, there have been no consequences—swift, severe,or otherwise— for those responsible. In fact, the SEC has continued to aggressively litigate withMr. Aguirre, insisting it has done nothing wrong.

As you know, the SEC’s new Inspector General has just concluded a two-year reinvestigationof the Aguirre matter first initiated in 2006 at your request and in response toCongressional inquiries exposing the failures in the first Inspector General review. This newreport finds, as did our report over a year ago, that the issue of taking Mack’s testimony wasinappropriately a factor in the decision to terminate Aguirre. The Inspector General hasrecommended disciplinary action against all three of the supervisors in Aguirre’s chain ofcommand who are still at the SEC.

I appreciate your assurances in our conversation yesterday that you are beginningadministrative procedures to finally discipline those responsible. These steps are long overdue.However, it is hard to square your assurances with the SEC’s public description of the report.The official statement issued by your staff grossly mischaracterized the Inspector General’sfindings. In order to leave the impression that the Inspector General had exonerated SECmanagement in the firing of Aguirre, the statement took one phrase out of context in a way thatwas extremely misleading.

The SEC statement read: “In this re-investigative report, the SEC Inspector General citedevidence that the Division of Enforcement ‘had a legitimate basis for terminating’ the attorney.”In fact, the full statement from p. 187 of the Inspector General’s report reads:Moreover, although there was evidence that Enforcement had a legitimate basisfor terminating Aguirre in his probationary period, the evidence also shows thatfew employees in Enforcement, even in their probationary periods havehistorically been terminated, and Enforcement management has tolerated muchworse conduct on the part of Kreitman, and even Hanson (emphasis added).

Moreover, the report later states in its findings and recommendations section on p. 191,that “the OIG investigation finds that Enforcement failed in numerous respects in how itmanaged Gary Aguirre and allowed inappropriate reasons to factor into its decision toterminate him" (emphasis added). This sentence comes immediately before therecommendations for disciplinary action.

In light of these facts, I request that the SEC correct the record and refrain fromdistorting it in the future. If your response to the Inspector General’s findings is to haveany credibility, then the SEC cannot be seen to be twisting his words in an Orwellianattempt to deny that he found what he found. Two independent inquiries and two yearsdown the road, the time for “swift and severe” consequences is long overdue. Thank youfor your continued cooperation on these important matters. Any questions or concernsshould be directed to Emilia DiSanto or Jason Foster of my staff at (202) 224-4515.